Manufactured Homes Inc Essay

Manufactured Homes Inc Essay
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  • University/College:
    University of Arkansas System

  • Type of paper: Thesis/Dissertation Chapter

  • Words: 400

  • Pages: 2

Manufactured Homes Inc


1. Identify the accounting policies of Manufactured Homes which have the most significant impact on the company’s financial statements. What are the key assumptions behind these policies? Do you think that these assumptions are justified? 2. Evaluate the company’s financial and operating performance during 1986 and the first nine months of 1987. 3. Given the company’s business strategy, accounting policies, and recent performance, what is your assessment of its current condition and future potential?


1 Accounting Policies
Credit Sales
Sales are recognized when the customer makes the down payment (Around 10%) and enters an installment contract. The rest is booked as a receivable and the customer’s pays in installments with an interest rate X%. Sale of receivables (FASB-77)

1. The seller unequivocally surrenders the receivable to the buyer. 2. The seller’s remaining obligations to the buyer under the recourse provision must be subject to reasonable estimation on the date of the transfer of the receivable. For this purpose, the seller should be able to estimate:

(a) The amount of bad debts and related costs of collection and repossession, and (b) The amount of prepayments. If the seller cannot make these estimates reasonably well, a transfer of the receivable cannot be reported as a sale. 3. The seller cannot be required to repurchase the receivable from the buyer except in accordance with the recourse provision. Reserve for losses on credit sales

Low default rates based on historical information
High credit risk
Receivables collection difficult to estimate according to FASB-77

2. Without finance participation MH would report interim losses In 1987 is basing most of his earnings on the finance participation which does not create value to the stockholders

3. Analysis MH should not include in their growth portfolio the finance participation income, due that this line does not add value to the stockholders. In the outlook net sales are expected to stay the same or grow moderately, expenses are expected to go up substantially, there is a huge risk associated with the net earnings specially with the finance participation and there is a huge concern about the firms ability to service the debt.


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